The governor of the Bank of England, Mark Carney, has said falling oil prices could temporarily turn inflation in the UK negative in the spring.
While launching the Bank's inflation report, Mark Carney added that this did not mean the economy had entered deflation as prices were likely to rebound around the turn of the year.
But he said if low inflation persisted, the Bank could cut rates further. Inflation stands at 0.5%, the joint lowest level on record, well below the Bank's target of 2%.
In a letter from Mark Carney to Chancellor George Osborne explaining the situation, he says that "the UK is not experiencing deflation" and that the "most important single reason for below-target inflation over the past year is the unexpected recent sharp drop in energy prices".
